A proposed 20 percent tax on imported goods championed by House Speaker Paul Ryan, R-Wis., as a way to overhaul the nation’s tax system received a hearing on Capitol Hill on Tuesday, and reception to the plan by business leaders and House Republicans was mixed.
The tax on imports, dubbed the border adjustment tax, has divided Republicans. Proponents argue the tax would help American manufacturers while raising $1 trillion over 10 years, and opponents say the plan would result in higher prices for consumers and cause businesses to lay off workers.
Senate Republicans, including Majority Leader Mitch McConnell of Kentucky, have said the border adjustment plan doesn’t have a chance of passing the Senate, while the White House has remained relatively silent over the proposal in recent weeks.
On Tuesday, the CEO of Target testified against the idea to the House tax-writing committee, as many large retailers are leery of a tax on the thousands of products they import from foreign markets.
“Under the new border adjustment tax, American families – your constituents – would pay more so many multinational corporations can pay even less,” said Target CEO Brian Cornell. “Eighty-five percent of Americans shop at Target every year. We believe this new tax would hit those families hard, raising prices on everyday essentials by up to 20 percent.”
But the former chief executive officer of Wal-Mart was cautiously optimistic. “I have weighed the considerable challenges this proposal presents to retail with the significant benefits it will deliver to the economy as a whole and have concluded that properly implemented, it is in the best interest of our country for this to be considered,” William Simon said.
Simon retired in 2014, and Wal-Mart is opposed to the border adjustment plan.
A few Republicans on the House Ways and Means Committee voiced reservations to the tax Tuesday. Minnesota Rep. Erik Paulsen, who represents a competitive district and did not vote for President Donald Trump, said he was opposed to the border adjustment tax.
“This has to be done in a very thoughtful way, a way that addresses the very real and valid concerns,” Paulsen said. “I cannot support the border adjustability provisions as introduced last year in the blueprint. I really want to urge this committee to listen, to be educated and to address these concerns that we heard.”
Other Republicans on the committee, including Reps. Mike Kelly of Pennsylvania and Jim Renacci of Ohio, pushed Cornell and Simon over the implications of the tax for consumers.
“I’ve been skeptical of the border adjustment as a central element of the blueprint, but I’m trying not to be,” Renacci said. “Does border adjustment pick winners and losers? Who will the tax burden ultimately shift to, and is it compliant with our international treaty obligations?”
It is unclear at this point whether the World Trade Organization would take punitive action against the United States for implementing the tax.
Tuesday’s hearing brought a change in messaging from Ways and Means Chairman Kevin Brady, R-Texas, who said the proposed border adjustment tax would end what he and others call a “made in America tax” for domestic manufacturers. There isn’t any such tax – American manufacturers are, like all exporters, taxed on their exported goods by foreign governments – but it’s an argument the House Republican leadership hopes will convince the president and his supporters that border adjustment would help middle- and working-class Americans.
“In the tax reform blueprint we propose to end the ‘made in America’ tax and instead tax all products and services equally when they are sold in America at a low rate of 20 percent,” Brady said. “And we lift the tax on ‘made in America’ products and services when they are sold abroad — for the first time leveling the playing field for American workers, businesses and farmers.”
Democrats are generally against the border adjustment tax and say Ryan and Brady’s plan doesn’t help middle- and working-class employees enough.
“There are many unknowns about the border adjustment tax,” said Ways and Means ranking member Richard Neal, D-Mass. “What would the BAT’s impact be on American jobs? Who will be the winners and losers as a result of the BAT?”
The tax overhaul plan supported by Ryan and Brady also reduces corporate taxes to a flat rate of 20 percent, establishes three personal income-tax brackets instead of the current seven and eliminates many deductions. The nation’s tax system has not been overhauled since Ronald Reagan’s administration.
Brady said he wanted to pass a tax overhaul plan by the end of the year.